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Sunday, January 15, 2012

Volume 4 Issue 2: Intelligent Investing

Joining the 1%

I think at some point in our lives, we have this dream of being a millionaire. Some of us who are a little bit bolder aimed higher, that is to join the billionaire's club.

The hype in earning more money than you can spend comes from the portrayal of a luxurious lifestyle as depicted by the Brad Pitts and Angelina Jolies on TV. Surely, one can go through life happily without driving a Maserati.

Or can we?

Many of us would even become green with envy, watching the rich and luxurious lifestyles depicted on TV and movies, especially so when some are more deserving than others. Why do we look at those who are not deserving with great disdain? Is it because we feel that we are more deserving? In fact, why do we seek out glamour and luxury so badly? Just how far are we willing to go? Just recently, I shared a story of an ex-investment banker who decided to leave his high flying lifestyle in pursuit of a better quality of life. 75,000 Pounds in his first year of work is certainly no paltry sum. Yet, he made his choice to leave the profession.

So what is so attractive about this elusive "wealth" that the 1% has that we so badly yearn after?

WE’VE all been hearing about the 1 Percent — you know, the nation’s fat cats. This small percentage of wealthy Americans has been reviled by the Occupy Wall Street movement and liberal politicians alike.

They have been called greedy. They have been called destructive to our nation’s sense of equality and justice. They have been called a risk to our future. The rich, in angry response, have stamped the floor — threatening, in the process, to scuff their marvelously comfortable handmade leather shoes — and pointed out that they are job creators, at least for Italian shoemakers.

Camping out in Zuccotti Park apparently didn’t beat them. They appear to be rather entrenched. But all the shouting had me thinking long and hard about the big issues that the conflict raises, and now I’m left with just this question: How do I get in on some of that sweet 1 Percent action?

The article was written by John Schwartz, who has no particular training in economics or business:

In climbing the income curve, I’ll also have to make up for my own financial handicap: I don’t actually know anything about economics. Or business.

That means if I’m going to climb from my status of genteel poverty into the vaunted one-tenth of the 1 Percent, I’ll need some outside help.

So I e-mailed a certified rich person: Mark Cuban. Mr. Cuban is a billionaire, having made his fortune through entrepreneurship and smart investments; he owns a bundle of companies these days, including the Dallas Mavericks of the N.B.A. When I told him that I was hoping to get rich, he quickly responded with some advice. “Easy answer,” he wrote. “Stop investing in mutual funds and depending on some kid in a gerbil cage running and trying to get ahead of his/her peers and instead pay off all of your debt, including your credit cards, and invest in yourself.”

Sounds easy enough? I think Mark Cuban has only touched on the tip of the iceberg on the matter. Doing what you love is the key necessity. This is best exemplified in the movie "The Three Idiots":

Follow Excellence, and Success Will Chase You, Pants Down

But it is far from sufficient. Not only that, excellence is not about money. I think it is a level of achievement that is meant to inspire others. In a sense, it is not unlike a world class performance, sometimes, from ordinary sources:

What does it take to be able to perform like that? I don't think that is anything short of a world class performance. Perhaps, something only the top 1% is capable of. Which is what I think it takes to be in the top 1%. The amount of hard work, dedication and most importantly, discipline to get there. Why do I say that discipline is the most important thing?

Well, among all the ingredients, I think it is the hardest to sustain. It is easy to work hard. It is easy to work long hours. But the real question is, can you do it for extended periods of time? Say, 5-10 years? Not so easy now, is it?

To be really good at something, you really need to do it over and over again. That is why they have sayings like "Practice makes perfect" and also Malcolm Gladwell's 10,000 hour rule, detailed in his book, "Outliers".

So how much exactly is 10,000 hours? Here is a rough estimate. Assuming I hope to be a world class fund manager and I put in about eight solid hours of work into it a day, it would take exactly 1,250 days to get there. I am talking about solid work here. We spend about 12-14 hours at the office daily (at least for me), but how much of that is solid work? Some take one hour for lunch, and some take tea breaks, and to be realistic about it, it is not likely to maintain 100% focus for 10 hours throughout the day. So, to be on the conservative side, I have assumed eight solid hours of work. What about weekends and vacation? Without any break whatsoever, 1,250 hours translates into roughly 3.4 years.

What if you were to take every Sunday off? That would be equivalent to roughly 170 Sundays, which is added to the 1,250, giving you a total of 1,420 days. That is close to four years of solid work. Even then, this only gives you a chance of entering the 1%. Nothing is guaranteed. After all, the 1% is not a static measure. If every one around you puts in exactly the same effort as you do, you would be right exactly where you started.